What is the method of valuation of shares in Public Limited Company ? This Company is Manufacturing Company and has Investment in shares. As per it's Portfolio Management Report it is taken on First in First Out method for valuation of shares whereas Auditor claims that it should be Weighted Average Cost method.
25 January 2011
The Answer to this question depends on the purpose of valuation of shares.
If the purpose is to carry out an audit, wherein the IAS say that investments should be valued at historical costs, then only the investment amount should be taken into consideration. Also, when you are selling the shares and computing gains, it is always the FIFO method for calculation of gains.
However, if you are carrying out an equity research valuation of the company, then the shares need to be valued at market price and thus a weighted average would present a better picture.
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